The stock market crash happens at a time when the Chinese development model has reached a turning point, and the financial turmoil reflects underlying structural problems of the economy.
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The article China Crash – The Faltering of Economic Transition on gongchao.org describes the events leading to the stock market crash in June 2015 and links it to the faltering economic transition as well as the demographic change and worker's protests in China:
"The stock market crash happens at a time when the Chinese development model has reached a turning point, and the financial turmoil reflects underlying structural problems of the economy, as well as social changes and tensions in the society as a whole. Since the early 1990s, China has become the second largest economy in the world and the engine of global growth, today representing 15 percent of global GDP. First, that boom was, however, driven by exports of consumer goods produced by "cheap" migrant labor, and the foundations of that model have been crumbling for some time. [...] Second, the social composition behind the boom is also changing. The most dynamic sectors of the Chinese economy – manufacturing, construction and services – are still resting on the labor of roughly 280 million migrant workers, but the mechanism of "cheap" migrant labor filling vacant (urban) jobs and then returning to the countryside in times of crisis and unemployment – as occurred in 1997–1998 and 2008–2009 – is partly jammed since many migrants have already permanently settled in cities. [...] Third, the second and third generations of migrant workers are voicing their demands for better living conditions, have more experience in organizing and struggle, and have managed to make use of the labor shortages. The result has been a sharp increase of migrant workers’ struggles since the mid-2000s, leading to steady wage rises. [...] Fourth, meanwhile, the CCP government wants to stabilize its regime and, therefore, has to ensure further growth. To prevent an increase in workers’ protests it is prepared to make material concessions. It has been actively promoting the transformation from an economy based mainly on cheap labor, contract manufacturing and exports to one driven by high value-added (high-tech) production (upgrading) and a large domestic market lowering the dependency on exports (rebalancing). The slowdown as a result of this transformation was expected and stands behind the recently announced "new normal" policies, but efforts in this direction go back to the 2000s, were intensified in the 12th Five Year Plan (2010–2015), and will probably be the theme of the 13th (2016–2020) that the CCP is working on now. However, this is an ongoing process with an open end – largely depending on global challenges and crises, social struggles in China, and government attempts to manage these."
Other interesting articles with slightly different interpretations of the state of China's economy include Sikander's on chuangcn.org: Papering over crisis: the Chinese stock market plunge and the real economy and Kevin Lin's on jacobinmag.com: Anatomy of a Collapse. The Chinese state’s intervention after the stock market crash was immensely political — as was the collapse itself.
Comments
I have read opinions that the
I have read opinions that the development model was simply not sustainable, in part due to the fact that capital flow was mostly foreign production demand (which is dropping) and that the state made many large but useless investments. At the same time, internal consumption demand did not reach the level needed. The slowdown was predicted many years ago, but only at a late point the rebalancing was introduced. Most of this is consistant with what you said. But to you think this is a main factor or not?